NEW DELHI: Inflation eased to a three-year low of 6.62% in January, bringing relief for policymakers and boosting prospects for an interest rate cut to support growth.

Data released by the commerce and industry ministry on Thursday showed the annual rate of inflation, based on monthly wholesale price index, stood at 6.62% in January compared to 7.18% for the previous month.

Inflation moderated below the 7% mark for the first time since November 2009 when it stood at 4.73%.

The latest data comes against the backdrop of a string of disappointing numbers which raised doubts about the strength of Asia's third-largest economy.

The Central Statistics office (CSO) has forecast that the economy will grow by 5% in 2012-13, while the finance ministry expects it to be around 5.5% or slightly more.

Retail inflation data released earlier showed that price pressures were acute with the increase hovering around double digits for the past four months.

Another comforting factor on Thursday was that the inflation for November remained unchanged at 7.24%, reversing a trend of sharp upward revisions for previous months.

Policymakers have been predicting that wholesale price inflation, the main gauge of inflation in the country, will start moderating.

But food prices continued to remain stubborn.

Vegetables rose an annual 28.5%. Onion prices, which have been under pressure for the past few weeks, shot up 111.5% year-on-year while potatoes rose an annual 79% in January.

Food prices have remained stubborn for the past few years and have posed a policy challenge.

Policymakers said they expect inflation to moderate further and estimated it to be around 6.5% by end-March but urged the government to release food stocks to ease price pressures.

"The decline in inflation is a welcome and reassuring sign. I expect March-end inflation to be 6.5%," said C Rangarajan, chairman of the Economic Advisory Council to the Prime Minister.

"Retail inflation is still high. WPI inflation in primary and food articles are still at higher levels. Efforts should be made to release larger stocks of food articles in the market," Rangarajan said.

Economists said the latest data raised hopes of a monetary easing when the Reserve Bank of India reviews policy. "...the mild moderation in core inflation in January 2013 combined with weaker-than-expected industrial performance in December 2012 boosts the likelihood of monetary easing in the next mid-quarter policy review," said Aditi Nayar, senior economist at ratings agency ICRA.

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